How Lenders Calculate Your Income for a Mortgage

The income number lenders use isn't what you tell them you make. It's what your tax returns and pay stubs prove you make.

If you're a W-2 employee

Lenders average your last 2 years of income from your tax returns. If you made $60k last year and $70k this year, they'll use something like $65-70k, depending on the trend.

Overtime, bonuses, commissions: Must be documented for 2 years and show consistency to be counted. If you've been getting $10k bonuses for 3 years straight, they'll include it.

If you're self-employed or gig worker

Lenders use your net income (after business expenses), not your gross revenue. This trips up a lot of self-employed borrowers.

If your business brings in $150k but your tax return shows $80k after deductions, your qualifying income is $80k. This is why many self-employed borrowers prefer bank statement loans.

Other income that counts

• Alimony and child support: If you've received it consistently and it will continue for 3+ years
• Social Security: Stable and ongoing
• Pension/retirement: Regular distributions count
• Rental income: With proper documentation (Schedule E, lease agreements)
• Part-time income: If you've worked the second job for 2+ years

Income that doesn't count

• Future income (new job starting next week — won't count until you have a pay stub)
• Unreimbursed business expenses
• Rental income without proper documentation
• One-time windfalls (inheritance, gifts)
• Investment income that isn't consistent

Bottom line: If your income situation is complicated (self-employed, lots of bonuses, rental properties), talk to a lender before you start shopping. They'll tell you what counts and what doesn't.